Paraguay Central Bank Statement

Author: | Published: 5 Sep 2017

Please enter a maximum of 5 recipients. Use ; to separate more than one email address.

Recipient email(s):

Recipient name(s):

Email yourself a copy?

By the end of 2016, signs of global economic improvement
pointed to an optimistic trade outlook. This news for Latin
America could not come at a better time as the region became a
bearer of bad news dealing with (and will probably continue to
deal with) lower commodity prices and higher external financing
costs relative to the previous decade. However, recent events
in advanced economies triggered new risks for trade integration
as a more protectionist stance is being fostered in some of
these countries. In this scenario, Latin American countries
must embrace this as an opportunity to strengthen trade
relations within the region and consider the potential benefits
not currently being exploited.

Historically, intra-regional trade in Latin America (LA) has
remained relatively low when compared to other regions. Around
80% of exports have been destined to other regions since the
1990s. In contrast, for example, in the East Asia and Pacific
(EAP) region almost 50% of their exports have been
intra-regional. This may partially explain the significant
income growth that these countries experienced in the last 25
years, boosting their catch-up process with high-income
economies. Their experience suggests to LA policymakers that
actions to reinforce regional trade ties must be a
priority.

One crucial feature that could motivate strengthening
integration is the fact that LA countries exhibit
complementarities. To illustrate this, when considering the top
10 products exported by countries from Mercosur, eight are
food, while eight of the top 10 products exported by countries
from the Pacific Alliance are mainly minerals, fuel and
machinery. This indicates that these economic blocs do not
share the same comparative advantages. It might be beneficial
for both parties to deepen their trade relations.

In this regard, Paraguay has made some progress, gradually
becoming part of the regional value chain through the
maquila regime. In the last years, Paraguay
has been developing this sector, which grew on average 24% in
the 2014-2016 period. More than 80% of its exports have been
destined to LA countries, mainly Brazil. This has represented
not only new trade ties with the region but also an opportunity
to diversify the country's export basket and to develop labour
intensive industries.

While the challenge of reaping the benefits of integration
has acquired more importance given emerging protectionism, it
does not imply that the region should neglect its trade flows
with other regions. On the contrary, closer ties among LA
countries should also be directed towards building a joint
strategy to become a more competitive region in global markets.
The strategy must be coupled with investment in infrastructure
and logistics and reducing nontariff trade frictions in each
country to promote region-wide efficiency gains.

As protectionism increases in advanced economies, further
regional economic integration may become the golden key to
foster economic growth in LA countries. This is particularly
important for small open economies like Paraguay, which
acknowledges that regional trade is crucial for product and
market diversification of its export basket. Our country is
aware that the region as a whole will always outperform the sum
of each country's individual efforts. So, by building a strong
neighbourhood, our countries will be able to successfully
access the most competitive and demanding global markets.